ISLAMABAD: Prime Minister Shehbaz Sharif on Saturday categorically told the Federal Board of Revenue (FBR) officers that he will resign but will not come under any pressure, adding that the process of reforms in FBR will continue.
Chairing a meeting during a visit to the FBR head-office, the prime minister said: “I’ll resign rather than succumbing to pressure of tax evaders, mafias and dishonest bureaucrats.”
He directed the FBR to reevaluate its strategy for enhancing revenue collection in order to help free the country from debt. He said the government had the sole agenda of putting Pakistan on path of progress with consistent improvement in the economic indicators.
“Though it may be a difficult journey which requires collective and individual efforts, sincerity and sacrifices and putting forth the national interests are supreme over all other interests,” he emphasized. He said that no recommendation is accepted as there is no personal like or dislike, adding that national interest is at the top, and if there is any mistake, it will be corrected.
The prime minister said the process of digitisation has been started in the FBR, assuring that it will be carried out in the most comprehensive and coordinated manner.
He said the FBR chairman gave a surprise on digitisation a few days ago. “If you had told me three months ago, we would have thought whether to bring foreign firm Mackenzie or not. I am telling the FBR chairman again, if there is still any surprise, give it, I will not take any action, but after that I will not tolerate any hide and seek.”
Shehbaz praised the FBR for achieving a 30 percent increase in tax collection during the last financial year. He emphasized the need to reach the tax collection target of Rs13 trillion set for the current fiscal year. He said traders and investors should not be harassed, instead, they should be fully facilitated and directed that tax should be collected where it was due.
The prime minister appreciated the finance team for securing the staff level agreement with the IMF, expressing the confidence that the board of international lender will also approve it. He said that now the time has come to act swiftly and tirelessly to make this programme the last one in the country’s history. “If we want to get rid of foreign debts, FBR should levy taxes on those who had not been paying any taxes,” he opined.
He also directed the FBR chairman to meet with flour mills owners and resolve their justified demands.
The prime minister said that the country’s top taxmen should realise the issue of repeatedly burdening of honest taxpayers, including the government employees who filed their annual tax returns. He said that his message was loud and clear that the current reforms in the FBR should be carried out without any personal likes and dislikes, and all the efforts should be directed under the national interests by rising above past tendencies.
The prime minister directed to immediately release Rs2 billion rupees to develop the Web-based One Customs System (WeBOC) on modern lines.
The meeting was informed that 4.9 million taxable persons have been identified by using modern technology. Shehbaz directed to increase the tax base and bring the identified persons into the tax net immediately. He was informed that FBR’s trader friendly mobile application based on automated system facilitates all processes from registration to tax submission.
Earlier, the prime minister arrived at the FBR Headquarters where he was welcomed by Minister for Finance and Revenue Muhammad Aurangzeb, Minister of State for Finance and Revenue Ali Pervaiz Malik and Chairman FBR Malik Amjad Zubair Tiwana.
Meanwhile, the IMF and Pakistan have struck a Staff Level Agreement of $7 billion under 37-month Extended Fund Facility (EFF). “This agreement is subject to approval by the IMF’s Executive Board and the timely confirmation of necessary financing assurances from Pakistan’s development and bilateral partners,” the Washington-based global lender stated in its official announcement made on Saturday.
Pakistan’s Ministry of Finance preferred to keep mum. Islamabad did not share anything about the National Fiscal Pact among the federal and provincial governments.
Under the NFC Award, the provinces got more than 60 percent shares under the federal divisible pool according to NFC sharing formula while Centre shrank to just 38 to 40 percent. However, the provinces are not ready to witness any kind of reduction in the NFC formula and always termed any such move against breach of NFC Award.
About the National Fiscal Pact without referring anything to National Finance Commission (NFC) Award, the IMF states “A fairer balance of fiscal effort between the Federal and Provincial governments, which have agreed to rebalance spending activities in line with the 18th constitutional amendment through the signature of a National Fiscal Pact that devolves to provincial governments higher spending for education, health, social protection, and regional public infrastructure investment, enabling improved public service provision. At the same time, the provinces will take steps to increase their own tax-collection efforts, including in sales tax on services and agricultural income tax. On the latter, all provinces are committed to fully harmonising their Agriculture Income Tax regimes through legislative changes with the federal personal and corporate income tax regimes and this will become effective from January 1, 2025.”
The IMF says that in response to a request by the Pakistani authorities, a team led by Nathan Porter, IMF’s Mission Chief to Pakistan, held discussions during the May 13-23, 2024 staff visit to Islamabad and virtually thereafter on IMF support for the authorities’ medium-term policy and reform plans. At the end of the discussions, Porter issued the following statement: “The Pakistani authorities and the IMF team have reached a staff-level agreement on a comprehensive programme endorsed by the federal and provincial governments, that could be supported by a 37-month Extended Fund Arrangement (EFF) in the amount equivalent to SDR 5,320 million (or about US$7 billion at current exchange rates). This agreement is subject to approval by the IMF’s Executive Board and the timely confirmation of necessary financing assurances from Pakistan’s development and bilateral partners.”
It’s quite strange that the Fund’s Executive Board will consider approval of the EFF provided getting confirmation on external financing from the development and bilateral partners. It means that the IMF’s executive board is expected to consider approval within the next three to six weeks period. “The programme aims to capitalise on the hard-won macroeconomic stability achieved over the past year by furthering efforts to strengthen public finances, reduce inflation, rebuild external buffers and remove economic distortions to spur private sector led growth. Key policy goals of the authorities’ programme include: Sustainable public finances, through a gradual fiscal consolidation based on reforms to broaden the tax base and remove exemptions, while increasing resources for critical development and social spending. In this regard, the authorities plan to increase tax revenues through measures of 1.5 percent of GDP in FY25 and 3 percent of GDP over the programme. In particular, the recently approved FY25 budget targets an underlying general government primary surplus of 1 percent of GDP (2 percent in headline terms).
“Revenue collections will be supported by simpler and fairer direct and indirect taxation, including by bringing net income from the retail, export, and agriculture sectors properly into the tax system. At the same time, the FY25 budget provides additional resources to expand social protection by increasing both the generosity and coverage of BISP, education, and health spending.
“Reducing inflation, deepening access to financing, and building strong external buffers are key to development and resilience. Monetary policy will continue to be focused on supporting disinflation, which will help protect real incomes, especially for the most vulnerable. To buffer against shocks and build reserves, the State Bank of Pakistan (SBP) will maintain a flexible exchange rate and continue to improve the functioning of the foreign exchange market and the transparency around FX operations. On financial stability, the authorities plan to take measures to deepen access to financing, while strengthening financial institutions, addressing any undercapitalised banks, and upgrading their crisis management framework.
“Restoring energy sector viability and minimising fiscal risks through the timely adjustment of energy tariffs, decisive cost-reducing reforms, and refraining from further unnecessary expansion of generation capacity. The authorities remain committed to undertaking targeted subsidy reforms and replace cross-subsidies to households with direct and targeted BISP support.
“Promoting private sector and export dynamism by improving the business environment, creating a level-playing field for all businesses, and removing state distortions. In this regard, the authorities are advancing efforts to improve SOE operations and management as well as privatisation (with the highest priority given to the most profitable SOEs) and strengthening transparency and governance around the Pakistan Sovereign Wealth Fund and its operations. They are also phasing out incentives to Special Economic Zones, phasing out agricultural support prices and associated subsidies, and refraining from new regulatory or tax-based incentives, or any guaranteed return that could distort the investment landscape, including for projects channeled through the Special Investment Facilitation Council. The authorities have also committed to advance anti-corruption as well as governance and transparency reforms, and gradually liberalise trade policy.”
Meanwhile, former Adviser Ministry of Finance Dr Khaqan Najeeb said that Pakistan’s agreement with the IMF gives the country authorities time and breathing space to do the required structural work in all key sectors of the economy, adding that it will cement macro stability. He said the IMF document is weighty on the tax side, electricity price increases, monetary tightening, flexible exchange rate and engagement with the provinces, but does less on the debt reprofiling and current and development expenditure reforms.
IMF’s added condition of ensuring financing assurances from our partners points to the continued effort needed to ensure the gross external needs are fully financed, he said. Dr Khaqan mentioned that at a time of a 50-year low investment to GDP, the fund has restricted incentivisation for attracting new investment and has an odd mention of the work in SEZs as well as that of SIFC.
“It’s a time for introspection and serious good old hard work to reform the economy into a productive and globally competitive manufacturing machine if Pakistan has to get off the IMF treadmill,” concluded Dr Khaqan.
Meanwhile, in a statement today, the prime minister expressed satisfaction over the staff-level agreement between Pakistan and the IMF saying the new programme will help in achieving economic stability. He thanked the IMF for supporting Pakistan in difficult times. “It is our commitment to take the country from stability to a strong and sustainable recovery,” he said. He said the time will come when Pakistan will be free from debt and will see economic prosperity.
Shehbaz said difficult decisions were taken for the economic security and its fruits are coming in the form of economic stability. He said measures will be taken to strengthen fiscal and monetary policy in addition to widening the tax base. He said the government was advancing the agenda of economic reforms to strengthen the country’s economic base and pave the way for sustainable development and prosperity.
He expressed confidence that the journey toward economic development will be achieved through government’s initiatives.
Prime Minister Shehbaz Sharif has asked the Federal Board of Revenue to stop playing “hide and seek” with him on board’s digitalisation.
He said the government would have considered involving McKinsey & Company, a global management consultancy, in the digitalisation process had the FBR suggested it three months ago, adding the government then would have made up for what was missing.
He said his government had started the digitalisation process.
He told the FBR chief that if there has been any ommission in executing the digitalisation plan, the FBR should bring up, and the government would rectify it.
